Newsbrief No 50 2 May 2003

Contents:

1. Budget 2003.

2. Government Pensions Green Paper.

3. Appointment of Additional Pensioner Trustee.

4. Newsbrief No. 48

5. Members E Mail Addresses.

1. Budget 2003

There are two matters in this year's Budget that affect Members. They have gone almost without comment.

First, personal allowances have not been increased in line with inflation.

The second could have a major impact on all Pensioners. It could possibly affect their State Retirement and also any Occupational Pensions they might have.

The proposal is that the Treasury is considering switching from the measure of inflation currently used, the Retail Price Index, to an index known as the Harmonised Index of Consumer Prices ( HICP). There has been no comment made about what this change would mean to the State Retirement Pensions or to the increases made to Occupational Pensions. What appears to be clear is that the HICP has been lower than the RPI.

It should be noted that the RPI contains a significant weighting for Council Tax. Whereas the HICP omits it entirely. The recent substantial increases in Council Tax have been particularly hard on Pensioners, many of whom use a high proportion of their pensions to pay this tax. The removal of Council Tax from the measure of inflation, would be a severe blow to Pensioners, if HICP were to be introduced for annual cost of living Pension increases.

APS Rule 15 deals with adjustment of pensions & allowances. It specifies that Pensions shall be adjusted in accordance with Section 2 of the Pensions (Increase)Act 1971. But if that Act is repealed, and not replaced; or should it become necessary to review the basis of such annual adjustment, then steps to ensure the annual adjustment of Pensions & allowances must continue to be made. Based on an appropriate National Index or Indices reflecting fluctuations in the Cost of Living.

NAPS Rule 15 (c)(ii) states "the percentage increase that would apply if the rates of increase specified in the Pensions Increase (review) Orders made in the exercise of the power conferred by Section 59 of the 1975 Act were applicable thereto." NAPS increases are, of course, the lesser of RPI or 5%. It is not clear what the intention is in examining the proposed change. It may be that the Government has no intention of using HICP for increases to State Pensions, and will continue with the current RPI figures.

ABAP Recommended Action. We urge Members to speak and write to their MPs now. To ask why the change is being considered, and whether there is any intention to use it for future increases in Pensions. If this is the intention we should call on our MPs to oppose such a move. Do Not Wait Please Do It Now.

ABAP Members will know of the campaign of one of our Members on the issue of the use of the Wages Index for Pensions Increases rather than the RPI. We must ensure that we do not lose out a second time.

2. Government Pensions Green Paper.

We are also asking all Members to write to their MPs on this Green Paper which is explained below. " Simplicity, Security & Choice: Working & Saving for Retirement. Government Green Paper 17th. December 2002." The Government issued the above Green Paper to start the consultative process prior to deciding what changes to propose in a White Paper and subsequently a Bill. Leading to a new Act or Amendments to the existing 1995 Pensions Act.

The initial reaction of ABAP is one of extreme disappointment that the Government has not seized the opportunity to address the shortcomings & serious problems that has led to a crisis in Final Salary Pension Schemes. The bold & radical solutions required to strengthen the existing framework of legislation & regulation are not evident in this document.

There are a number of firm proposals that do have ABAP approval & support. From the plethora of proposals, we have chosen those we believe are important to both APS & NAPS. (both are closed schemes) We have sent our comments, as has COPAS. ( Confederation of Occupational Pensioner Associations ) We would like you to think carefully about these issues. It is the future security of your Pension that is at stake.

If you wish to read this Green Paper (168pages), your local Library should have a copy. We urge you to make your views known by writing to your MP on this and also on the Chancellors Proposal (outlined above) to review the index used to increase Pensions.

Background to the Green Paper

Following the Maxwell Pension Scandal, the then Government set up the Goode Committee for Pension Law Reform. It comprised some of the most distinguished experts on Pension Law, Investment Policy, Accountancy & Actuarial practice in the UK.

The Goode Report was bold, wide ranging, & imaginative. The main plank was the Minimum Solvency Standard, which meant in effect that accrued Pensions liabilities for Pensioners & Active Members would be "matched" predominantly by Bonds. This was designed to safeguard Beneficiaries rights. Other recommendations include a central discontinuance fund & a mutual insurance fund to deal with insolvency, or wind up, to be financed by a levy on pension schemes. There was also a compensation scheme in the case of Fraud.

Following fierce political lobbying by Employers & the Pensions Industry, the Minimum Solvency Standard was watered down. What emerged was the Minimum Funding Requirement (MFR). This required the actuarial valuation to be valued on a "matched" investment policy, predominantly in Bonds & Equities.

However, the investment policy itself could be held in Equities. This led to over optimistic assumptions, abuse & under funding. The focus was on short term market conditions instead of on the most secure longer term investment policy designed to meet long term liabilities.

We believe it is fair to say that had the recommendations of the Pension Law Reform Committee been implemented, Pension Schemes would not now be facing a crisis in confidence.

Comments on Specific Points in the Green Paper.

Funding Proposal.

The replacement of the MFR with a "Scheme Specific Funding Approach". There are no details provided of the meaning of this term, only vague comments such as "Employers, Trustees, & Scheme Actuaries will have to work together to develop appropriate funding strategy for their Schemes."

Worthy sentiments, however unless that objective operates within a strong protective legislative framework, abuse and under funding in some Schemes will continue.

If the intention is to de regulate, this would be disastrous for beneficiaries. MFR has been shown to be weak & ineffective. The 1995 Pensions Act was weak. If the past decade has shown little else, it teaches that where other people's money is concerned Strong Safeguards are essential. The Actuary must be responsible not only to the Trustees, but also to the Beneficiaries.

The view of ABAP is that a strong legislative solvency standard must be introduced with a matching Investment Strategy designed to meet and safeguard the needs of each Pension Scheme. In particular those of closed Schemes. This is based on our own experience as outlined in the general comments.

A New Pensions Regulator.

Occupational Pensions are currently regulated by the Occupational Pensions Regulatory Authority (OPRA). The Government's Quinquennial OPRA Review assessed its performance as effective, but felt there was a need to work closely with other bodies.

It was reactive rather than proactive. It proposed a new kind of Regulator who would work alongside OPRA; resources would be focussed on protecting benefits of Scheme Members. A Regulator who could anticipate problems before, rather than after.

We welcome and support this proposal, but emphasise the need for legislative teeth to ensure that fraudsters & wrong doers will be punished with custodial sentences. Adequate funding will also be required.

Protection in the Case of Scheme Wind-Up: Amending Creditor Priority.

At present Final Salary Schemes take their place with unsecured creditors in order of precedence following an Employers insolvency. The Government has recognised this problem, and suggests creating a new category of creditor which would increase the chance of securing additional funds.

This "suggestion" has our full support. It should be a firm proposal in the White Paper.

Central Discontinuance Fund & Insurance Scheme.

The Government is looking at the possibility of a Central Discontinuance Fund, also a Mutual Insurance Fund to cover insolvency & Wind -Up. The need for a central Insurance Scheme is now urgent. It is not only desirable but crucial, if the confidence of contributors is to be restored.

Such a proposal would be welcomed by ABAP. It should be done now without further delay. The cost would be met from contributions, but this cost would be balanced by the additional safeguards provided by such an Insurance Scheme.

Member Nominated Trustees (MNTs) & Opt Out.

This is of particular relevance given the recent BA Opt Out Proposal and the membership of the separate Trustee Boards for APS & NAPS.

The Pensions Act 1995 currently provides an arrangement whereby one third of The Trustees on each board must be elected by Scheme Members. This was/is a statutory minimum. There was provision for Employers to propose an Opt Out arrangement, unfortunately this could be used to frustrate the MNT regulation.

The Government is now proposing to retain the MNT provision, but to simplify the arrangements for selection and to abolish the Employers Opt Out arrangement. Unfortunately until new legislation comes into force, the Employer Opt Out remains.

ABAP totally supports the abolition of the Employer Opt Out and say the sooner The Better. It is important that: ALL existing Opt Outs be abolished within 6 (six) months of any new legislation coming into force, and Trustees charged with introducing new arrangements based on Membership Proportions. (Actives, Pensioners, & Deferred Pensioners) This will abolish the loophole left in the current amended regulations, which allow an Employer to propose a new Opt Out before 5th October 2002 with a life of 10years. An Option which BA has used.

We also urge the Government to give Pensioners equal rights to members in Pension Scheme matters, and to legislate for Pensioner Trustees particularly in Closed Funds.

It is important to note that the APS Trust Deed has an entrenched clause providing for an equal number of Trustees appointed by the Employer & elected by the Beneficiaries. Five nominated by the Employer, Two elected by Active Members, and Three by Pensioners. NAPS has a similar arrangement.

Improved Compensation Arrangements.

The existing Compensation Scheme was introduced in 1995 to compensate Schemes that became insolvent through dishonesty, however, currently there are various restrictions on the amount of compensation payable.

The proposal is to remove the restriction and compensate for the full amount lost. The cost would be financed by a Levy paid by Occupational Schemes. This proposal has full ABAP support.

3. Appointment of Additional Pensioner Trustee.

You will now have received the notice from BA Pensions advising that an additional Pensioner Trustee is required for both APS & NAPS. Any eligible BA Pensioner (see BA Pensions notice ) who wishes to stand must obtain a Nomination Form from BA Pensions and submit with the signatures of 20 eligible Pensioners by 30th May 2003.

If any Pensioner who wishes to stand, & would like ABAP support/endorsement would they please advise any member of the Committee urgently.

ABAP is consulting with the BA Liasion Council on how we should deal with this issue should several Pensioners wish an endorsement.

4. Newsbrief No. 48.

Our apologies to those eagle eyed Members who noticed we had missed out issue No.48. At the time of the preparation of the last Newsbrief two different and separate drafts were prepared that acquired consecutive numbers along the line. No.48 is therefore voided.

5. E Mail Addresses: Update.

Thanks to all Members who continue to send their email addresses. It has been pointed out by our web master that to have an accurate file to replace snail mail we must have staff nos. and addresses included in case of server and consequent e mail address changes. This will also enable the ABAP database to be accurately annotated with those not needing postal service. Will Members please use the ABAP website as before www.abap.org. uk to upgrade their registration. We are getting there……

The Committee of ABAP 2nd May 2003.